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Could corn prices blow over?Could corn prices blow over?

Ag Marketing IQ: Six points to consider regarding corn prices as the grain market faces spring planting headwinds, including questions about disappearance, competitive feed pricing, ethanol demand and export pressures.

Larry Shonkwiler, Senior agricultural economist

January 31, 2025

5 Min Read
Corn with hundred dollar bill.
Getty Images/JJ Gouin

“Friendly” January Corn Supply/Demand and Grain Stocks reports helped propel March futures some $.25 cents higher to the $4.95 level before the market paused for a breather and it has since sold off 15 cents or so. The report saw USDA cutting last fall’s corn yield by 3.8 bushels per acre to 179.3 and production by 276 million bushels to 14.867 bbu. Dec. 1 corn stocks of 12.07 bbu were 92 million below the average trade estimate, adding a supportive note to the report.

The USDA did make some changes to the demand side of the balance sheet, reducing its feed/residual estimate by 50 to 5.775 billion and taking 25 million off its export forecast, trimming that number to 2.45 billion. The smaller feed/residual figure makes sense given the “residual” component is somewhat a function of crop size (the larger the crop, the larger the residual number and the visa-versa). USDA’s justification for the slight reduction in exports was a one-liner: “reflecting lower supplies.” Ok, time will tell. The net of the report was a 223 mbu cut in the ending stocks forecast to 1.54 bbu, or 134 million less than the average trade estimate. The trade expected just four-tenths of a percent reduction.

On the heels of that report, here are six points to consider heading into spring:

Related:Will Brazil get its corn planted?

Corn has become relatively high-priced versus HRW domestically since early September. And the corn/HRW ratio recently falling to a 3-year low of 1.15 to 1, which should encourage more summer wheat feeding. As a result of declining wheat prices and based on historical balance-of-the year feed/residual disappearance, we think USDA could be overstating corn use by as much as 175 mbu. That could boost ending stocks to around the 1.715 bbu level.

Consider the price of soybean meal relative to corn. The graph “Meal/Corn Ratio (Decatur 48%/Average Farm Prx) below shows the ratio of SBM to corn on a per pound basis using annual data beginning with the 2000-01 crop year. Additionally, the graph gives (1) the latest 5-year average as well as (2) the 10-year average and (3) the current ratio of SMH25 and CH25. As the chart suggests, soybean meal prices relative to corn are at levels not seen since the drought year of 2012-13 when corn averaged $6.90 per bushel and soybean meal was $468 per short ton. Or a ratio of 1.90:1. The current “Board” ratio of 1.75:1 suggest soybean meal prices are near a 35-year low relative to corn.

Meal/Corn ratio graph

Does cheaper meal relative to corn increase the amount used in feed rations? We will defer to the nutritionists on the exact answer, but price and consumption data taken from USDA’s ERS division suggests some substitution may well be taking place. Note the graph “SBM Share of Corn and SBM” below. Crop year 2023-24 is highlighted with the data label ‘23 and the January forecast for 2024-25 is indicated by “24-F”. From the graph the share of SBM used is expected to increase from around 24% last year to 25% in 2024-25.

Related:There’s gold in that farmland!

Although the fit is not perfect, cheap SBM relative to corn appears to increase the share of the former and high-priced meal, the opposite (note 2013-14 when meal use was barely 21% of the total). For 2024-25, USDA is currently penciling in a 29 mbu reduction in the corn feed/residual total while at the same time expecting domestic soybean meal consumption to increase by 1.6 million tons, or about 4%.

SBM Share of corn and soybean meal graph

Estimates of corn (and sorghum) used for ethanol production increased between the release of USDA’s September and January Supply and Demand reports. Back in September combined consumption of the two was forecast at 5.475 bbu. This has since risen to 5.545 (corn, up 50 and sorghum, 20 higher).  Although spot ethanol dry mill margins of late are flirting with break-even, strong exports of ethanol have been supportive, keeping weekly input grind running ahead of last year. This sector will be closely watched to see if run rates are scaled back should break-even margins persist, adding to ending stocks.

Related:Raise a cheer for volatility

Exports have performed quite well, with the pace of year-to-date sales remaining quite strong and leading USDA to raise its forecast by 150 mbu since September. Sales to date are up almost 30% from this time last year (375 mbu) and inspections through Jan. 23 are nearly 200 mbu greater at 1.2 bbu. Unshipped sales of 879 mbu are 205 larger than a year ago, pointing to an active program the last half of the year. After a very aggressive September-January period, exports from Ukraine have begun to decline and unless last fall’s crop has been under-stated, shipments for the remainder of the year could fall by over 250 mbu versus 23-24. The next several months will be critical in determining the size of the South American crops. Soybean harvest delays in Brazil are slowing the start of safrinha planting which will have implications for when the crop pollinates. The combination of extended heat and dryness in Argentina have resulted in lower estimates for that crop with some as much as 4 MMT below the USDA. Argentina should be the U.S.’s principal export competitor from now into late June and the market will be watching the development of both South American crops closely.

China corn imports graph

China has been largely absent from the world corn market this year with Sep-Dec imports down a huge 90%, or about 430 mbu. This has allowed other countries, particularly Brazil and Ukraine, to shift supplies to other markets, moderating their own production shortfalls.

China is not expected to return to the market until late summer, if at all. With a new U.S. administration, any sign of a thaw in trade relations would be friendly to the corn market.

Contact Advance Trading at (800) 747-9021 or visit www.advance-trading.com.

Information provided may include opinions of the author and is subject to the following disclosures:

The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance does not necessarily indicate future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.

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Crop Prices

About the Author

Larry Shonkwiler

Senior agricultural economist, Advance Trading, Inc.

Larry was reared on a Central Illinois grain and livestock farm. He earned a bachelor’s degree in Ag Industries and Master of Science degree in Agricultural Economics from the University of Illinois. He earned his Ph.D. in Agricultural Economics from The Ohio State University. He is responsible for assessing developments in both the domestic and overseas markets for coarse grains and oilseeds and their implications on corn and soybean merchandising opportunities for mid-western grain storage and handling facilities.

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